Oil In "Warning" Phase

It has been a roller coaster ride for commodities prices for the past few weeks. Silver had a sharp correction and that was followed by Gold and Oil prices.

The phase chart for oil is now in “Warning” phase. Looking at the phase chart, the price of oil dipped into “Warning” phase back in Nov 2010 and Jan 2011. These dips proved to be a buying opportunity with the bulls buying strength pushing the chart into a new high.

The 50 day moving average now serves as a resistance level. Looking at the charts, the drop this time looks to be more severe then the previous two instances when the price dipped below its 50 day moving average. I will be more cautious this time and wait for the test of its 200 day moving average before jumping to any conclusion.

The Trend Of Oil Price

The price of crude oil ended near the $70 mark per barrel. The price of oil is one of the determining factors that influence the movement of stock market. When the price is too high, the fear of inflation kicks in. When the price is too low, market participant infer that demand for oil is low which gives the perception the economy is slowing down.

Such is the love and hate relationship that market participant has with oil price.

Looking at the phase chart of USO (United State Oil ETF), the price of oil is facing the 200 day moving average resistance level. The price is sandwiched between the 200 day and 50 day moving average. It is still in “Recovery” phase.

If the price is able to bounce off from the 50 day moving average, it will be a sign that investors are betting on higher oil price in the coming months. Looking at the technical charts, oil price should have further upside.

Oil Price

OPEC decided on Wednesday to reduce production by 2.2 million barrels a day in an effort to stop the trend of falling oil prices.

The aim of the move is to bring oil back to $70 to $80 per barrel. However oil price did not rally based on the decision. It was a typical buy on rumour sell on news trade.

The contract for New York's light sweet crude for delivery in January expired at 33.87 dollars a barrel, down 2.35 dollars from its Thursday close.

The contract dived to an intraday low of 32.40 dollars, a level last seen on February 9, 2004.

The New York contract for delivery in February, which becomes the market reference beginning Monday, finished 69 cents higher at 42.36 dollar.

Oil is still deep “Bearish” phase based on the phase chart of USO. It has stayed in “bearish” phase since 1 Oct 08. So sticking to the trend will mean that we should not be buying oil at this price level.

Bearish Oil

Oil continues to trade with a “bearish” bias. The USO chart shows that oil has been trading in “Bearish” phase since the beginning of October.

With the story of a slow down in economy together with strengthening of the US dollar, this bearish trend looks set to continue.

The chart shows a pivot point at $50.44. If price falls through this level, it will confirm the downtrend and price is likely to fall to the $42 region.

The 50 day moving average is now at $75 and 200 day moving average is at $88. These 2 levels form the resistance going forward.

Oil - Warning Phase

The current stock market is much dependent on the direction of oil prices. Higher oil prices increases the risk of higher inflation which is detrimental for stock market.

Crude oil prices has corrected from a high of $147 to $122 last night. That is a correction of around 17% in 2 weeks.




Looking at USO (US Oil Fund ETF), the price moved from $119 to $98 dollars in its recent down slide. The phase chart is showing warning signs having moved into “Warning” phase since 17 July 08. A similar pattern occurred in early January where the “Warning” phase lasted 11 trading days. The 200 day moving average for USO is at $86 dollars which is 12% below the current price.

Oil Update

Oil price has been rising steadily and there is no sign that the price is going to come down anytime soon.

Lets look at United States Oil (USO) a investment fund that seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil.

The closing price on 21 May 08 was 108.31. For 2008 alone, the price has gone up from 75.76 to 108.31, an increase of 43%.

The phase chart is in “Bullish” phase. In fact the price level has not touched the 200 day moving average since Aug 07.

The price is now about 45% above its 200 day moving average of 74.51. There is a high chance of a pullback from current high levels. But the trend is clearly up.

Oil Phase Analysis

Oil has been going up lately. Lets look at United States Oil (USO) a investment fund that seeks to reflect the performance, less expenses, of the spot price of West Texas Intermediate (WTI) light, sweet crude oil. The fund will invest in futures contracts for WTI light, sweet crude oil, other types of crude oil, heating oil, gasoline, natural gas and other petroleum based-fuels that are traded on exchanges. It may also invest in other oil interests such as cash-settled options on oil futures contracts, forward contracts for oil, and OTC transactions that are based on the price of oil.



The fund has spent most of the time in "Bullish" phase since July 2007. There were occassional pullback to "Warning" phase but such pullback actually turned out to be buying opportunity.

The graph looks extended at the moment but the trend is still "Bullish".